Did you know that your retirement account avoids probate?  Since there is a beneficiary form associated with this account, it is considered non-probate property, and will get to your beneficiary more quickly than probate property.

Just like your other estate planning documents, your retirement account needs to be properly set up and maintained in order to reap the benefits, and you need to:

1.   Make sure you have named a primary beneficiary along with a secondary beneficiary (some forms may call it a contingent beneficiary) for each IRA.

2.   Obtain a copy of the beneficiary form for each IRA and keep it with your other estate planning documents, and make sure your estate planning attorney and your estate’s executor have copies.

3.   If there are multiple beneficiaries on one IRA, make sure that each beneficiary’s share is clearly identified with a fraction, percentage or the word “equally,” if applicable rather than simply listing the names and assuming an equal split.

4.   Make sure that the financial institution holding the IRA has your beneficiary designations on file and that their records agree with yours.

5.   Let your beneficiaries know where to locate your IRA beneficiary forms.

6.   Review your IRA beneficiary forms annually or when major life changes, such as marriage or divorce, occur to make sure the designations are correct and current.

7.  Review your beneficiary choices with your estate planning attorney to make sure they coordinate with your overall estate plan.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

You’ve undoubtedly heard the term “Roth IRA” – these tax-free retirement accounts are incredibly popular and, if you meet the qualifications, they can be a fantastic retirement planning tool. A less-known retirement planning option is the Roth 401(k). While Roth 401(k)’s are growing in popularity, they are not as widely available as traditional 401(k) plans. Here are a few Roth 401(k) basics:

• Contribution Limit: A Roth 401(k) has the same annual contribution limit as a traditional 401(k). This year, if you’re under age 50, you can contribute up to $16,500 to your 401(k). If you’re 50 or older, you’re allowed to contribute up to $22,000.
• Income Limit: There is no maximum income that excludes you from contributing to a Roth 401(k).
• Tax-Free: When you contribute to a Roth 401(k), you contribute with after-tax dollars; there’s no income tax deduction for contributions in the year they’re made. However, when you withdraw funds from your plan during retirement, your withdrawals aren’t taxed. So, you get the full benefit of any interest earned on your contributions over the years.
• Employer Sponsored: Unlike a Roth IRA, which is an individual account and can be established by you, as an individual, with the financial institution of your choosing, a Roth 401(k) is an employer-sponsored plan. This means that if your employer doesn’t offer the plan, you’re out of luck. It also means that any matching funds contributed to your plan by your employer are treated a little differently. Employers’ matches are paid with pre-tax dollars, so they’re segregated from the contributions you make to the plan, and treated like traditional 401(k) funds.
• Required Minimum Distributions: Because a Roth 401(k) is an employer sponsored plan, you’ll have to take a Required Minimum Distribution (RMD) from your account each year after you reach age 70 ½, or face an IRS penalty.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

If you’re among the dwindling minority of Americans who can rely on a pension when you retire, you might wonder whether you’ll be able to collect your full social security retirement benefit, too. For most people, the answer to this question is “yes”, but it depends on whether you’ve always worked for an employer that participates in the social security system.

There are certain government agencies, nonprofits, and foreign employers that don’t pay Social Security tax on behalf of their employees. If you’re entitled to a pension from one of these employers, but you also spent part of your career working for an employer that does pay into the social security system,  then you stand to have your social security retirement benefits reduced, courtesy of the Windfall Elimination Provision.

The provision was enacted in 1983 as a cost-cutting measure for the Social Security Administration. Before the Windfall Elimination Provision was enacted, some retirees got the maximum social security benefit allowed, plus their full pension benefit, even though their employers had not paid as much into the social security system as did other recipients’ employers.

So, if you’ve worked for a combination of employers, how do you know if – and how much – your social security benefit will be reduced? Unfortunately, the answer is not on the annual statement you receive from the Social Security Administration letting you know what benefits you’re entitled to. The reason for this is that the Administration does not have relevant information for the years you worked for a non-participating employer, so the true amount of your benefit won’t be reflected in your statement.

Instead, to find out whether your social security benefits will be affected by the Windfall Elimination Provision, you can use the Social Security Administration’s online calculator.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

What do you plan to do with your tax refund this year? Here are three suggestions that could net you long-term benefits:

1. Reduce Your Debt: If you have credit card bills or other consumer debt hanging over your head, consider putting your tax refund to work by using it to pay down those debts. Not only will this reduce your current monthly bills and free up some cash, getting out of debt and staying out of debt can put you in a better position when the time comes to retire.
2. Pay Down Your Mortgage: There’s been a long-standing debate concerning whether it’s better to pay off your mortgage prior to retiring, or to invest money toward a retirement income that can help you cover your total living expenses – including your mortgage – once you leave the workforce. If your goal is to retire mortgage-free, your tax refund can be a great way to start chipping away at your outstanding loan balance.
3. 3.       Build Your IRA: If you don’t have high-interest debt to worry about, consider getting a jump on your 2011 IRA contribution. If you have a traditional IRA, your contribution will likely count as a deduction on next year’s tax return. With a Roth IRA, your contribution won’t qualify as a deduction, but it will be allowed to grow, tax-free until you’re ready to retire.

For more insights on saving for retirement – and for coordinating your retirement planning with your estate planning – you can speak to your estate planning attorney.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

A traditional IRA can be an excellent retirement savings tool, particularly if your earnings are too high for you to contribute to a Roth IRA or you don’t have the opportunity to invest in a 401(K).

A traditional IRA allows your retirement contributions to grow tax-free, and in many circumstances your contributions to the account are tax deductible, too.

There are some limits to the amount you can contribute to a traditional IRA in any given year. First, you can only contribute up to the amount of your earned income for the year in question. Interest and other unearned income don’t count. Second, your contributions are capped at $5,000 for 2011 (that number increases to $6,000 if you’re 50 or older).

In many cases, the contributions you make to a traditional IRA are tax deductible. And regardless of whether or not your contributions are tax-deductible, the earnings on your contributions are tax-deferred. This means that your account balance can grow without any income taxes until you begin withdrawing funds from the account – preferably after you reach age 59 ½.

Starting in the year after you reach age 70 1/2, you’ll be required to withdraw a minimum amount from your account each year. This is what’s known as a Required Minimum Distribution (RMD), and the amount varies from person to person and from year to year. The IRS determines the amount of your annual RMD on the basis of your age and your IRA balance.

One final note about making contributions to a traditional IRA, for any given year, you can start making contributions on January 1, and you have until the following tax day to contribute the maximum. So, if you haven’t maxed out your 2010 contributions yet, you have until April 18, 2011 to do so.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

Unlike a traditional IRA, which offers tax-deferred growth for your retirement savings, a Roth IRA offers tax-free growth. Your contributions are not tax deductible, but after you reach age 59 ½ , the distributions you take from your Roth are not taxed – and this includes the money that initially went into the account as well as the interest earned on those funds.

There are some pretty strict restrictions on who can contribute to a Roth IRA, and how much can be contributed each year. First, the income limits:

• If you’re single, you can contribute the maximum to your Roth as long as your Modified Adjusted Gross Income (MAGI) is below $107,000. If your income is in the $107,000 – $122,000 range, then the amount you can contribute in that year is phased out. If you make more than $122,000, you’re ineligible to contribute to a Roth.
• For married couples filing jointly, the limits are slightly more generous. If your MAGI is below $169,000, you’re allowed to contribute the maximum to your Roth. The amount you can contribute is phased out if your income is between $169,000 and $179,000. And, if your MAGI is more than $179,000, you can’t contribute to a Roth IRA.

So, what is the maximum contribution allowed each year? For 2011, if you’re under age 50, you can contribute $5,000 to your Roth. If you’re 50 or older, that limit is increased to $6,000. You’re also limited to contributing an amount equal to your earned income for the year. So, if you only earned $4,000 in a given year and rounded out your finances with investment income, you can only contribute $4,000 to your Roth.

Unlike a traditional IRA, a Roth IRA is not subject to Required Minimum Distributions. This means that  if you don’t need the money in your account to cover living expenses during your retirement, you can use your Roth to pass on wealth to your spouse or other beneficiaries.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

You can choose to start receiving Social Security retirement benefits at any time between ages 62 and 70. So, how do you know when the time is right? Here’s a short overview of how your benefits are affected by the age at which you begin receiving them.

Social security benefits are calculated based on two elements. The first is your earnings history, and the second is the difference between your “normal retirement age” and the age at which you begin receiving benefits.

Normal Retirement Age

Your normal retirement age is based on the year in which you were born.  For those born in 1937 or earlier, normal retirement age is 65. For those born between the years 1938 and 1959, normal retirement age ranges between 65 and 2 months and 66 and 10 months. And, for those born in 1960 or later, normal retirement age is 70.

If you choose to start taking Social Security benefits at your normal retirement age, then you’ll get your full benefit. However, you don’t have to wait until full retirement age to start receiving benefits, nor do you have to start taking Social Security at the moment you reach full retirement age.

Early Benefits

You have the option of taking Social Security retirement benefits beginning when you reach age 62. However, this choice is not without consequences. For each month younger than full retirement age you are when your benefits start, the amount of your benefits will be permanently reduced by a certain percentage.

Delayed Benefits

On the other hand, waiting until you’re older than full retirement age to start collecting Social Security carries privileges. For each month past full retirement age you wait to start taking benefits, your benefits are permanently increased by a certain percentage. Everyone’s benefits are capped when they reach age 70.

To calculate your benefits at different potential retirement ages, you can use the Social Security Administration’s benefits calculator.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

Social Security does not only provide benefits for primary recipients, it also provides benefits for surviving spouses. These benefits are called “widow’s” benefits, although they’re payable to either a surviving husband or a surviving wife. How do they work? Here’s a brief overview:

Generally, the widow’s benefit is equal to the deceased spouse’s Social Security benefit. However, if your spouse has passed away and he or she had a lower Social Security benefit than you, your benefit will not be reduced by virtue of your spouse’s death.

What happens when your spouse dies, and you have not yet reached full retirement age? The amount of your widow’s benefit will depend on the age at which you decide to collect it. The youngest age at which you can opt to collect the benefit (with a few exceptions) is 60. However, if you decide to collect early instead of waiting until your full retirement age, your widow’s benefit will be permanently reduced. What is your full retirement age? It’s between 65 and 67, depending on your year of birth.

If you are disabled or you have a dependent child under the age of 19 – or a child who is 19 and a full-time student – then the age threshold at which you’re permitted to begin collecting widow’s benefits is reduced.

You might be eligible for widow’s benefits even if you’re not technically a widow. If you’re divorced, your were married to your former spouse for ten or more years, and he or she passes away, you are still eligible for widow’s benefits as if you were still married at the time of your former spouse’s death.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

The IRS recently announced the contribution limits for those funding an Individual Retirement Account during 2011 – and they’re the same as the 2010 limits.

So, whether you have a regular IRA or a Roth, you’re allowed to contribute $5,000 to the account next year. If you’re 50 or older, you can take advantage of the “catch up” provision, and put an extra $1,000 in your IRA.

What about Income Limits?

If you’re considering a Roth IRA, you may be wondering whether the income limits will change in 2011. Those limits have also been announced, and they’re slightly higher than this year’s. Here’s a summary:

For Singles

If you’re single, you can contribute up to the annual limit, as long as your Modified Adjusted Gross Income (MAGI) is less than $107,000 per year. If you earn more than $107,000 but less than $122,000, the amount you’re allowed to contribute is reduced, based on your exact income. And, if you earn more than $122,000, you’re ineligible to contribute to a Roth.

For Married Couples Filing Jointly

If you’re married filing jointly, and your MAGI is less than $169,000, then you can fully contribute to your Roth. The phase-out begins at $169,000. And, if you earn more than $179,000, you can’t contribute to a Roth at all.

If you don’t meet the income requirements for a Roth, you may want to check with a financial advisor about converting a traditional IRA to a Roth, as a “back door” method of taking advantage of the tax-free growth and other benefits available with a Roth IRA. As of January 1, 2010, the $100,000 income cap for Roth conversions was removed; so now, anyone can convert. A financial advisor can help you decide whether it’s a good financial move for you.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.

With the state of the economy, a 401(k) loan has become an increasingly attractive source of funds for some people. If you’re considering this option, here are some things you should know:

1. There are limits. You’ll have restrictions both on how much you can borrow, and on how long you’ll have to pay the money back. Generally, you can borrow up to half of your account balance, or $50,000, whichever is less. And, you usually have to pay the loan back within 5 years, with payments –which are automatically deducted from your paycheck in the form of after-tax dollars – starting in the pay period after you take the loan.
2. There’s no credit check. You’re essentially making a loan to yourself, and since there’s no bank or other institution involved, there’s no credit check.
3. You pay yourself the interest. Because you’re making a loan to yourself, the loan payments, and the interest you’ll pay on the loan, go back into your 401(k) account.
4. There’s significant risk. If you leave your job – or you’re terminated – your loan is generally due in full within 60 days. What happens if you can’t repay it? If you’re under age 59 ½, then the amount left outstanding is considered an early distribution from your retirement account, and you’re on the hook not only for income taxes on the funds, but also for a 10% penalty.

When you borrow money from your 401(k), you’re losing out on the potential growth that the borrowed money represents for your retirement account. Plus, because you pay back the loan with after-tax dollars, and then you’re taxed again when you withdraw money from your account from retirement, a 401(k) loan results in an income tax double-whammy.

All of this means that a 401(k) loan should only be used as a last resort during a true financial emergency.

The Mendel Law Firm, L.P. is a member of the American Academy of Estate Planning Attorneys.